What Is a Business Credit Card and How Does It Work?

What is a business credit card?

A business credit card is a revolving line of credit that businesses can use to manage expenses. They often offer free employee cards and spending controls.

Who can get a business credit card?

Business credit cards are available to anyone who earns income outside of a traditional W-2 job. That includes independent contractors, freelancers and people with side hustles. It also includes businesses large and very small.

Approval for a business card is based mainly on personal credit history. You can qualify with no revenue and minimal time in business as long as you have good-to-excellent personal credit.

» MORE: How to get a business credit card as a new business

How do business credit cards work?

Business credit cards work a lot like personal credit cards. You charge expenses, pay down your balance and repeat.

Most business cards have a set credit limit and require a minimum monthly payment. Always try to pay the balance in full. If you can’t, you’ll pay interest on what’s left. Annual percentage rates on business credit cards range from around 18% to 28%.

Business charge cards have no credit limit and you need to pay the full balance each month. They’re best for businesses with robust cash flow that want to maximize rewards.

» MORE: How to use a business credit card

Benefits of business credit cards

Business credit cards offer literal perks, like discounts and rewards, as well as a host of other benefits. Here are seven benefits of using a business credit card.

1. You can earn rewards. Earn either cash back or travel points for every dollar you spend. You can use those rewards on yourself or the business.

2. You can get discounts on business expenses. Some business cards offer discounts from brands like Adobe, Dell, Lyft and Apple. And many business travel cards give statement credits for flights, checked bags and more.

3. You can get higher credit limits and bigger sign-up bonuses. The minimum credit limit for some business cards starts at $10,000. And most business cards have better sign-up bonuses than personal cards.

4. You can build business credit. Business credit cards report payments to business credit bureaus. Making early or on-time payments can help strengthen your business credit score.

5. You can get interest-free financing. Several business credit cards offer a 0% intro APR period of a year or longer. Business owners can leverage that perk to float inventory costs during slow seasons.

6. You can manage employee spending. Business owners can issue employee cards as needed to facilitate business spending. Some business cards let you have up to 99 employee cards on the same account. Other business cards have no limit on the number of employee cards you can have. And almost all business cards let you set spending controls to limit how those cards are used.

7. You can separate business and personal expenses. Having a dedicated card for business expenses helps streamline bookkeeping and tax reporting. It also makes it easier to gather financial records if you apply for grants or business loans.

Drawbacks of business credit cards

No Card Act protections. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Card Act) doesn’t extend to business credit cards. That means interest rates can change with little warning. You may encounter fees you are not used to on personal credit cards.

Late payments can ding your personal credit. Most business credit cards require a personal guarantee. In simple terms, it means that you — the individual — will pay the balance if your business can’t. As a result, late payments may impact not only your business credit, but your personal credit, too. There are a few business credit cards that don’t require a personal guarantee, though.

High interest rates. Interest rates for business credit cards range from 18% to 28% (or higher). Unless you have a 0% intro APR period, a business loan or business line of credit is a better bet to finance large purchases. Those products are harder to qualify for than business credit cards, but they usually come with lower interest rates.

» MORE: What if you can’t pay your business credit card?

Is a business credit card right for you?

Business credit cards can be useful tools for companies of all sizes. You may be able to qualify for a business credit card whether you’re a solopreneur with a side gig or running a small business with multiple employees.